Buying a Multi family unit

12 Replies

Hey guys I am a newbie to get this out there . I found a multi family unit , it’s located right beside a nice college . It’s 9 units , Needs no repairs , Its 100% rented out which means no vacancys Total gross rent is 6615 a month They owner who is retiring wants 495,000 for the property’s My questions I don’t have a lot of cash for this deal how could I make this work ? As always Thank you for your responds ! NF

Hi Noah,

There are multiple ways for financing the deal but might depend on how much cash are you looking for. You can pls go for partnership with other investor(s) who can partially fund the deal or ask if seller is willing for seller financing the deal.

Rgds

Kishore 

@Noah Farley I would recommend you read and listen to what the @Gino Barbaro and his partner Jake have created with their MFH properties. They have some creative ways to buy properties. I would start by asking the seller to hold a % to help you get in the deal. You can pay it off as the property appreciates and you go from a recourse loan to non-recourse. Gino can explain more and better details. 

Congrats on the find! Best of luck to you. 

@Noah Farley From napkin math, looks like $735 a month in rents. Is that the going rate for the rents in the area? How much more could you reposition the property without pushing out tenants? What is the property appraised for? Have you done a walk-through of the property? Again, Gino might have some ideas on financing and he has almost 1000 units, so he knows more about it. He says you need to look at 100 deals to make offers on 10 that turn into 1 getting accepted. I hope this works for you, but if not, look at it as practice for the next one. 

@Jack Bobeck The going rate around this area is around 800-1200 $ . I honestly believe I could get more . Here is what this multi is renting for now . 2 apt 1 bedroom 1 bath = 450 $ 2 apt 4 bedroom 2 bath = 850$ 1 apt 5 bedroom 4 bath =1395$ 1 apt 5 bedroom 1bath = 1300$ 1 apt 1 bedroom 1 bath = 495$ 1 apt 1 bedroom 1 bath =475$ 1 apt 1bedroon 1 bath =400$ = 6615 $

On the surface, it sounds like a good deal. My recommendation is that you really put pen to paper and prove it's a good deal. Use actual numbers, not what you think you can get for rent.

Once you can prove the numbers, start raising cash and finding a way to make this happen. See if the owner will finance it for three years with a lower down-payment. If not, talk to a bank and see what it will take for them to qualify you and then find a way to meet their standard. Do your parents have money to invest? Friends, uncles, grandparents, or your boss?

If the numbers are accurate and you can demonstrate that on paper, you should be able to find people willing to go in on the deal with you.

@Noah Farley I second what @Jack Bobeck and @Nathan G. said about doing the actual underwriting based on the actuals not the estimates. Also, it sounds like you want to rent it out to students, so food for thought - some folks rent out rooms. Look into the local laws if this is allowed but you may incur hotel-type of taxes. In addition, if you're going to rent it out to students, you may need to UP  your deposits from them and your expenses after each move out might be higher. Talk to others who invests in student housing and ask for lease samples and other things relevant (that are not common for a typical multifamily.)

@Noah Farley Congrats on the find! Ask for a rent roll and financials-like a T12. Do your calcs from those actuals. Get the building inspected by a licensed pro. Try to go into the deal with some reserves for maintenance and surprises-there are always surprises! All the best! Hope you are able to put it together.

I would base the numbers on what the actual numbers say as well. Get lease agreements and have them match with bank deposits. 

In terms of cash flow, i would also point out, cash flow for the property may differ from cash flow to your pocket. Basically, take your Net Operating Income and subtract Mortgage payments (and taxes if you really want to be conservative). 

And finally, dont forget to set aside some money for repairs and upgrades. 

@Noah Farley great find. From a 30k foot view those numbers (if accurate) are solid. Unless this property is falling apart I don’t see how you could get hurt too bad on maintenance and repairs. Deals are scarce and people are hungry to get into them. Lock it in. Congrats on the find.

Since the owner is retiring, they may be interested in seller financing. But, they will still want some cash down.

Another option is to raise money to fund the down payment from friends and family. This is known as a syndication. If you go with this approach, speak with a real estate attorney who specializes in apartment syndications to make sure you are within the law.

Lastly, you could bring the deal to an experienced apartment investor and receive a finder's fee or ask for the percentage of the deal. Most importantly, you want to shadow this person while they acquire, close, and manage the deal so that you can learn the process.